The commodities piece was right up our alley, being in the business, so to speak. The piece echoes some of what we said in our newsletter last year: “3 Big Reasons Commodity ETFs aren’t Getting the Job Done,” which is basically that commodity ‘investing’ doesn’t look so great when it is a “long-only“ approach (only makes money when commodities go up) because:

Even when they do, the access points are complex and won’t necessarily provide a return equal to what the commodity did.

Carlson goes a step further, however, quoting some academic research which shows commodities actually add volatility and reduce return… not reduce volatility and add return as is supposed to be the case with a non correlated investment.

So trade commodities instead of ‘invest’ in them?

Now, some might take that to mean that commodities should be avoided, and here’s where it gets a little confusing – because the lesson from this shouldn’t be that ‘commodities’ are to be avoided and that ‘commodities’ add volatility and reduce return. The lesson should be that Long-Only Commodities do those bad things. The lesson should be that diversification into the commodities space isn’t as simple as buying and holding those volatile commodities. The lesson might be that they are better for ‘trading’, as Carlson points out, then ‘investing’.

Trading commodities can still give you exposure to moves that have nothing to do with the stock market (like Coffee being up 71% this year or grains selling off 30% the past few months). And that’s really what having exposure to commodities is all about. It’s about gaining exposure to outlier moves in commodity markets brought about by non-financial, non economic catalysts. Like droughts and snow storms.

But not everyone wants to sit around and ‘trade’ commodities. That’s not quite a retirement plan… “I put 40% in stocks, 30% in bonds, and trade 30% in commodities”… as it would cut into your golf time quite a bit. For those who still want the commodity exposure, but not the trading screens – the target is professional commodities traders, or registered Commodity Trading Advisors. Now, there are thousands of such registered professionals out there – but the grand majority of them don’t actually trade in commodities, despite their name. The grand majority do systematic trading on a portfolio of markets including bond, currency, and stock index futures.

The ones which trade commodities and commodities only – are what we call Ag Traders (short for Agriculture). So while Mr. Carlson’s question seemed to be of the rhetorical type – we can actually put some data to it and compare professional commodity trading with commodity investing via ETFs. Who wins?

Investing in the ‘trading’ of commodities versus just plain ‘investing’ in commodities has won out handily over the past 9 years. [Past performance is not necessarily indicative of future results].

Disclaimer
The performance data displayed herein is compiled from various sources, including BarclayHedge, and reports directly from the advisors. These performance figures should not be relied on independent of the individual advisor's disclosure document, which has important information regarding the method of calculation used, whether or not the performance includes proprietary results, and other important footnotes on the advisor's track record.

Benchmark index performance is for the constituents of that index only, and does not represent the entire universe of possible investments within that asset class. And further, that there can be limitations and biases to indices such as survivorship, self reporting, and instant history.

Managed futures accounts can subject to substantial charges for management and advisory fees. The numbers within this website include all such fees, but it may be necessary for those accounts that are subject to these charges to make substantial trading profits in the future to avoid depletion or exhaustion of their assets.

Investors interested in investing with a managed futures program (excepting those programs which are offered exclusively to qualified eligible persons as that term is defined by CFTC regulation 4.7) will be required to receive and sign off on a disclosure document in compliance with certain CFT rules The disclosure documents contains a complete description of the principal risk factors and each fee to be charged to your account by the CTA, as well as the composite performance of accounts under the CTA's management over at least the most recent five years. Investor interested in investing in any of the programs on this website are urged to carefully read these disclosure documents, including, but not limited to the performance information, before investing in any such programs.

Those investors who are qualified eligible persons as that term is defined by CFTC regulation 4.7 and interested in investing in a program exempt from having to provide a disclosure document and considered by the regulations to be sophisticated enough to understand the risks and be able to interpret the accuracy and completeness of any performance information on their own.

RCM receives a portion of the commodity brokerage commissions you pay in connection with your futures trading and/or a portion of the interest income (if any) earned on an account's assets. The listed manager may also pay RCM a portion of the fees they receive from accounts introduced to them by RCM.

Disclaimer
The performance data displayed herein is compiled from various sources, including BarclayHedge, and reports directly from the advisors. These performance figures should not be relied on independent of the individual advisor's disclosure document, which has important information regarding the method of calculation used, whether or not the performance includes proprietary results, and other important footnotes on the advisor's track record.

Benchmark index performance is for the constituents of that index only, and does not represent the entire universe of possible investments within that asset class. And further, that there can be limitations and biases to indices such as survivorship, self reporting, and instant history.

Managed futures accounts can subject to substantial charges for management and advisory fees. The numbers within this website include all such fees, but it may be necessary for those accounts that are subject to these charges to make substantial trading profits in the future to avoid depletion or exhaustion of their assets.

Investors interested in investing with a managed futures program (excepting those programs which are offered exclusively to qualified eligible persons as that term is defined by CFTC regulation 4.7) will be required to receive and sign off on a disclosure document in compliance with certain CFT rules The disclosure documents contains a complete description of the principal risk factors and each fee to be charged to your account by the CTA, as well as the composite performance of accounts under the CTA's management over at least the most recent five years. Investor interested in investing in any of the programs on this website are urged to carefully read these disclosure documents, including, but not limited to the performance information, before investing in any such programs.

Those investors who are qualified eligible persons as that term is defined by CFTC regulation 4.7 and interested in investing in a program exempt from having to provide a disclosure document and considered by the regulations to be sophisticated enough to understand the risks and be able to interpret the accuracy and completeness of any performance information on their own.

RCM receives a portion of the commodity brokerage commissions you pay in connection with your futures trading and/or a portion of the interest income (if any) earned on an account's assets. The listed manager may also pay RCM a portion of the fees they receive from accounts introduced to them by RCM.

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DISCLAIMERS

Trading futures, options on futures, retail off-exchange foreign currency transactions (“Forex”), investing in managed futures and other alternative investments are complex and carry a risk of substantial losses. As such, they are not suitable for all investors. You should not rely on any of the information herein as a substitute for the exercise of your own skill and judgment in making such a decision on the appropriateness of such investments. Any mention of ‘funds’ within this site encompasses both privately offered fund and separately managed account investments.

Past Performance is Not Necessarily Indicative of Future Results. The regulations of the CFTC require that prospective clients of a managed futures program (CTA) receive a disclosure document when they are solicited to enter into an agreement whereby the CTA will direct or guide the client’s commodity interest trading and that certain risk factors be highlighted. The disclosure document contains a complete description of the principal risk factors and each fee to be charged to your account by the CTA. Use the following links to view the full terms of use and risk disclaimer and our privacy policy.